Sometimes in life, we make mistakes. Things don’t go according to plan, or as smoothly as we’d like.
The ability to look back on a situation, experience or event and realise something you may not have understood at the time, presents an opportunity to learn and apply the lesson the next time.
We live and we learn.
But making mistakes in investing may mean losing money. And the worry of losing money is a genuine fear that can hold back would-be investors from ever making that first investment.
The good news is that we don’t always need to make our own mistakes to learn valuable lessons. There are plenty of investors out there who’ve already had to learn the hard way.
“Learn from the mistakes of others. You can’t live long enough to make them all yourself.” - Elenor Roosevelt
With that in mind, we asked a handful of experienced investors what they thought were their most important investing lessons learned from their early days in investing. Today, we share these lessons you can take into your investment journey, without having to make the mistakes yourself.
Vital investment lessons for first-time investors
1. You don’t need a lot of money to start investing
“It took me a long time to make my first investment. I was absolutely convinced that investing was something only super rich people could do. I had some savings set aside, but I thought that was the best place for my money. It wasn’t a lot, but it was something.”
“One day, I was having a chat with a friend who was telling me about some investments he’d made. I didn’t want to be rude and ask him how he could afford it, as I thought he might be offended that I didn’t think he had enough money. But then he mentioned the name of the platform – Nemo.money - and I went online to find out. I was surprised and happy when I saw that I could invest with only $3. That day, I made my first investment. Now I’m seeing the returns come in and put in more small amounts whenever I can.”
Nemo.Money offers fractional shares. What that means is that you don’t need to invest in a whole share of the company stock. We will divide the stock into fractions, or portions, and allocate the fraction equal to the amount you want to invest – from as little as $3 for your first deposit.
As an example, let’s imagine that the stock of Company LTD is $100. You have $5 that you want to invest. We calculate that $5 is 5% of $100 and so you’ll get 0.05 shares of Company LTD.
Investing with Nemo.Money is commission free too, so you get to keep more of your potential profits.
2. Time is your most precious commodity – Invest from as young as possible
“A lot of the money I earned in my early 20s was spent on partying and stuff I didn’t REALLY need. When I started investing at about 34, I realised that I could’ve had so much more! Time really is your friend in investing, and I would encourage everyone to not wait (to start investing). As soon as you’re earning a steady income, be strict with yourself about putting away money every month.”
There are several benefits to becoming an investor from an early age.
When you start investing in your 20s or 30s, you have the luxury of decades ahead of you to ‘ride out’ market fluctuations. As you have a longer investment horizon ahead of you, a period of falling prices is less of a worry and concern. In the short term, markets may experience volatility and downturns, but over the long term, they tend to trend upward. By investing early, you give your investments more time to recover from market downturns, and benefit from overall market growth.
Speaking of growth, that’s the next point.
Investing earlier means your money has more time to grow, as it earns returns not only on the original investment but also on the earnings generated over the years. This compounding effect becomes even more pronounced when you have a longer investment period, and can exponentially increase your wealth over time.
Let’s show a simple example, using $100.00 as an initial investment and a profit of 10% per period. We add the earnings to the initial investment and have higher balance (shown as Ending Balance) as a base to earn profit in the next period.
Please bear in mind that the stock market is never going to offer a flat profit rate over multiple periods. The takeaway here is that you’ve earned profit on your initial investment and any further gains are on a higher balance, despite not adding any further funds to your balance.
Investing earlier also means you’re able to take on a higher level of risk than someone investing for the first time later in life. Young investors can afford to allocate a higher percentage of their portfolio to riskier, potentially higher-reward investment opportunities. This risk tolerance can lead to greater long-term gains, as riskier assets often outperform safer ones over extended periods.
High Volatility Stocks on Nemo
As named, this neme features stocks with high volatility and, therefore, a high potential for growth. Effective risk management strategies should be applied to balance the risk and minimise potential losses.
View the High Volatility Stocks neme.
The luxury of time as a young investor means you can remain patient during market downturns, allowing your investments to recover and grow. By riding out these lows, you position yourself to reap the rewards of compounding and potentially build greater wealth over the long term. This ability to stay invested and patient is a key advantage that comes with starting early in the world of investing.
Sidebar: While investing early has added benefits, it’s never too late to start investing! So, even if you’ve ‘graduated’ from young adult status, don’t put it off any longer. Growing your financial wealth is possible at any age.
3. Don’t discount the importance of diversification in portfolio management
“Back in the day, I was very much an ‘all in’ kind of guy. If I felt passionate about something, I wasn’t afraid to back that 100% and double down if necessary. My investment portfolio of my early days reflected this, as I poured my money into the tech sector, and honestly, only a handful of companies.”
“Of course, when the great bubble burst, I was left staring at a screen of red; losses across the board because I’d gone ‘all in’ on what I thought was a surefire path to huge gains. While I’m still passionate about technology in general, today my investments are more varied. I now invest in a wider range of industries, ETFs, and I’m sure to include less riskier stocks to keep things more balanced.”
An investment portfolio without diversification lacks cushioning from significant overall losses at the hand of limited variation in stock or sector selection.
Diversification isn't about missing out on big gains; it's about protecting your investments from catastrophic losses.
While everyone will have their personal preferences when it comes to investing in particular industries or stocks (nothing wrong with that, it’s what Nemo’s nemes are designed around), your portfolio should ideally be built by spreading your investments across different types of stocks, industries, and sectors. This way, you can reduce the risk associated with holding a single stock or concentrating your investments in a particular industry or sector.
The key to effective diversification is variety. Here’s a handful of diversification options to consider:
- Industry diversity: Assess investing across a spectrum of industries. There are a range to choose from such as Technology, Pharma, Banks, Fashion, Travel, Gaming, and lots more.
- Market capitalisation: Look at a mixture of stocks from businesses across large, mid and small market cap sizes.
- Volatility levels: Evaluate stocks with different levels of volatility – from high, moderate, and low volatility.
- Geographies: Spread your investment in stocks of companies located in different regions around the world.
Ultimately, diversification helps mitigate the impact of poor performance in any single stock or sector, as losses in one area may be offset by gains in others. It's important because it can enhance portfolio stability and reduce the potential for significant losses, while still allowing you to participate in the overall growth potential of the stock market.
Investing Wisdom for Your Financial Future
Armed with these lessons, remember that success in investing is a result of not only making the right investment decisions but also avoiding costly mistakes. Take the gift of hindsight from the seasoned investors as foresight to your investing journey. Embrace the lessons, seize the opportunities, and let your financial future shine brightly.
